'Over the near term, we expect supply to fall off, unless someone has to borrow,' says Invesco's Matt Brill

A $30 billion bond-financing portion of Paramount Skydance's $110 billion merger with Warner Bros. Discovery is now complete.

A mega $30 billion bond-financing package to help Paramount Skydance Corp. buy Warner Bros. Discovery Inc. crossed the finish line on Wednesday, despite growing bond-market tumult and a surge in borrowing costs.

The historic $110 billion Hollywood tie-up comes as a powerful selloff in long-dated Treasurys has gripped financial markets, pushing up benchmark yields to their highest levels since 2002.

In practical terms, that means increased borrowing costs for families, businesses and the U.S. government.

For Paramount (PSKY), that meant pricing $5.25 billion of 10-year investment-grade bonds at a spread of 262.5 basis points (2.625 percentage points) above the benchmark Treasury rate, according to Bloomberg.

With the 10-year Treasury yield BX:TMUBMUSD10Y hitting 5.3% on Wednesday, that equates to roughly 7.925%.

That compares with the roughly 7.5% rate on new 30-year fixed mortgages, according to Mortgage News Daily. Higher mortgage rates have kept the housing market largely on ice.

Higher oil prices as the Iran war enters an eighth month have played a role in pushing Treasury yields higher, mainly because investors want to get paid more to offset inflation risks.

But on Wednesday, the large Paramount deal, itself, also appeared to be a factor in pushing long-dated yields higher.

"I think the Paramount deal is definitely front and center," said Tom di Galoma, a managing director at Mischler Financial Group, as the 10-year yield rose 5 basis points in afternoon trading.

There's also been selling pressure out of Europe, he said, and concerns about the price of oil over the next few weeks as diplomatic talks between the U.S. and Iran appear to have stalled.

Brent crude futures for November delivery (BRN00) rose 0.9% to settle at $103.53 on Wednesday, and have soared 42% during the third quarter, according to Dow Jones Market Data.

Of note, Paramount's financing of its Warner Bros. $(WBD)$ acquisition ended up including more "junk"-rated bonds and loans than initially expected, and a smaller reliance on investment-grade bonds.

That's important because while selling junk bonds with below-investment-grade ratings typically ends up being more expensive, the investment-grade market offers less flexibility in terms of retiring the debt early.

Keeping the option to repay expensive debt early would be one way large companies look to navigate today's more expensive borrowing backdrop. Another way would be to wait, and hope, for yields to fall before issuing new debt.

"Over the near term, we expect supply to fall off, unless someone has to borrow," said Matt Brill, head of North America investment-grade credit at Invesco, of new high-grade bond issuance.

Planned M&A deals and continued issuance from the artificial-intelligence "hyperscalers" are two segments that likely can't wait too long, he added.

For now, most companies want to only issue on the front end of the Treasury yield curve, or notes with shorter maturities, "because the pricing is so punitive" to borrow for longer periods, Brill added.

"I think everyone is sharpening their pencils and wondering what is the impact of this going to be," Brill said of the spike in yields since August. "It's happened so fast. I don't know that anyone knows."

Warner Bros. declined to comment. Paramount didn't respond to a request for comment.

-Joy Wiltermuth